CRUDE OIL JUMPS 4% ON HOPES FOR OPEC CUT -- ENERGY SPDR HITS NEW HIGH -- OIL SERVICES ETF MAY BE NEXT -- ENERGY AND MINERS LEAD CANADIAN STOCKS HIGHER -- HUDBAY MINERALS ACHIEVES BULLISH BREAKOUT -- SO DOES FREEPORT MCMORAN
CRUDE OIL CLIMBS ABOVE 50-DAY AVERAGE... Renewed optimism for an OPEC output cut has pushed crude oil 4% higher in today's trading and has given a big boost to energy shares and the rest of the stock market. Chart 1 shows WTIC Light Crude oil rising above its 50-day average for the first time in three weeks after recently finding support near its 200-day moving average. The price of crude has been tracing out an apparent bottoming pattern since summer 2015. After bottoming in February, WTIC has been in a sideways consolidation pattern between $52 and $40 since June. A move back to the top of that pattern now appears likely. A move above $52 would be very bullish. As often happens, energy shares are leading the commodity higher.
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Chart 1
ENERGY SPDR HITS NEW HIGH... The daily bars in Chart 2 shows the Energy Sector SPDR (XLE) trading at the highest level in seventeen months. That's a vote for higher oil prices. Energy shares continue to act as market leaders. The XLE/SPX ratio (top of chart) has been risen since February and appears to be on the verge of a bullish breakout of its own. Chart 3 shows VanEck Vectors Oil Services ETF (OIH) nearing an upside breakout as well. Coal stocks are also having a strong day. The energy sector is leading all major U.S. stock indexes to new record highs. It's also giving a big boost to foreign stocks tied to energy --like Canada.
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Chart 2
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Chart 3
CANADIAN STOCKS JUMP WITH OIL ... Since Canada is a big exporter of oil, it's economy and stock market are closely tied to the trend of that commodity. Right now, that trend is higher. Chart 4 shows MSCI Canada iShares (EWC) gapping 1.8% higher today and nearing a test of its autumn highs. Shares traded in Toronto are doing even better. Chart 5 shows the Toronto Composite Index ($TSX) already at the highest level in eighteen months. The reason the TSX is doing better than the iShares is because the Canadian Dollar has been in decline. That causes the EWC (which is quoted in U.S. dollars) to lag behind. Both appear to be headed higher however. The two strongest groups in Canada today are energy and materials.
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Chart 4
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Chart 5
HUDBAY MINERALS AND FREEPORT MCMORAN BREAK OUT... Mining stocks are also having a strong day in Canada. One of the day's strongest is HudBay Minerals (HBM.TO). Chart 6 shows what that stock looks like on the Toronto Stock Exchange. And it looks strong. The stock has risen above a "neckline" extending back to last October. Mining stocks are also helping lift the U.S. market. My November 10 message showed Freeport McMoran (FCX) on the verge of a bullish breakout. Chart 7 shows FCX accomplishing that today by rising above major resistance near $14. Copper shares are leading a rally in basic materials today on the back of another big jump in the price of copper. Materials are second only to energy today.
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Chart 6
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Chart 7
S&P 500 HITS NEW HIGH... Chart 8 shows the S&P 500 clearing its August high to reach a new record. The Nasdaq Composite Index did the same. That leaves little doubt that the market's trend is still higher. The fact that it's being led higher by economically-sensitive stock groups like energy, materials, industrials, small caps, and transports is a sign of strength. The fact that technology stocks are starting to strengthen again is also a positive sign. What's especially impressive in today's rally in commodity-sensitive stocks is that it's taking place in the face of a rising dollar (although it pulled back today). I suggested last week, however, that the rising dollar might have a less depressing effect on economically-sensitive commodity groups like energy and materials. Prospects for an OPEC production cut and infrastructure spending appear to be "trumping" the impact of a stronger dollar.
